- The Competition Commission has recommended that the R1.1 billion takeover deal of hardware company BUCO be blocked.
- Cashbuild wanted to buy the company from Pepkor.
- But the competition authority says the newly created giant will be able to squeeze suppliers.
Pepkor’s sale of hardware chain The Building Company (BUCO) - which also owns TimberCity and Tiletoria - to Cashbuild must be blocked, the Competition Commission recommended to the Competition Tribunal.
Cashbuild would have paid R1.1 billion for BUCO as part of the deal.
With 228 stores in the country, Cashbuild is the largest hardware retailer in South Africa. BUCO is the second biggest. The transaction would have created a new largest retailer of building material, hardware and related products in South Africa.
"The proposed merger will result in the removal of BUCO as an effective competitor in the national market with the potential to expand and compete effectively in the market," the commission found.
It says that the takeover will create a dominant supplier of building material and related hardware products in many townships.
"This is because in these areas, independent retailers do not exert a significant competitive constraint to the merging parties. These include areas such as Alice, Sterkspruit, Acornhoek, Giyani, Lethlabile and Thabazimbi. Thus, the proposed merger will give the merging parties the ability to unilaterally increase prices or change trading terms in several geographic areas."
The merged company will also be able use its buyer power to squeeze the margins of their suppliers, particularly smaller suppliers who will now have to negotiate with the single largest retailer, the authority said.
In addition, the commission is concerned that the proposed new giant would undercut competitors in "key value items" such as cement, which is a footfall driver to hardware stores.
The Department of Trade Industry and Competition also filed a notice that – given that the deal will create the largest single retailer of building hardware in the country – it must come with "substantial" commitments to employment and transformation as well as the development of local products and suppliers."It should be noted that this is only a recommendation at this stage and the Competition Tribunal must still hear arguments from all parties before determining a ruling," Cashbuild said in a statement.